Geithner Galls Gadflies

It's only a month before spring but we can already feel the fog
beginning to lift. Of course, today's fog is the heaviest and
thickest fog seen in a while, but it feels good to see a
potential positive, in any case.

I'm speaking, of course, with regard to Treasury Secretary Timothy
Geithner's speech last week. The quote above applies to many who
waited breathlessly during the five-day buildup to this speech,
expecting some sort of magical plan to appear. The reality is that
no silver bullet plan exists and pretending it does would only
bring further disappointment and loss of confidence in the future.

Certainly, society is not so focused on immediate satisfaction that
an initial speech from an incoming official could be his death
knell?

On the contrary, I saw many positives in last Tuesday's address.
Here are a few:

1.Most importantly, there were no specifics.
Yes. You read that correctly. Because no one has all the answers
today, to come out and state that you do only sets yourself up for
assured destruction. Instead, Geithner has set a course toward
recovery, while increasing his credibility with those who
understand the depths of today's economic woes. He seems to be
taking the tack of a CEO who is navigating in uncharted waters with
limited vision in every direction. In fact, that is the situation
today not only for business owners, but for government officials
too. To repeat, no one has all the answers. The government must
react and adjust, but keep an eye toward a single course at the
same time. Perhaps Geithner is the man who can lead us in this
manner.

2. There were no four- or five-letter designations mentioned.
Over the last fifteen months we have had no less than 16 government
bailout programs announced with acronyms from CPFF to TALF. The
market has alphabet-fatigue. Instead, he has one name for the
government's efforts: "Financial Stability Plan."

Sure, this is simply a marketing fix, but who doesn't realize
boosting market confidence is a marketing game? After Lehman, a
multitude of new programs were created pointing at every corner of
the markets. Instead of realizing we had economy-wide issues to
deal with and creating an economy-wide approach, the government
attempted to use a scalpel on our individual problems. Geithner, it
seems, is starting from scratch with a view from thirty-thousand
feet. In the short run, I expect the market to lose confidence (as
it did last week) as this is yet another shift in strategy. But if
he sticks to his guns, inviting every market challenge under the
same tent, eventually investors and consumers will realize he has
created a flexible tool to address all of the challenges we face
today and tomorrow.

3. He has created a simple three step approach.
Understanding where every market challenge fits is quite important
for the institutional investor. We want simple fixes for simple
problems. Instead, what we have today is a mishmash of approaches
that are somehow supposed to come together and provide support
across the markets. Investors are not buying it.

The three step plan simplifies the government's toolbox so that
investors can more easily grasp their commitment toward resolution.
The three steps, which necessarily have not been fully fleshed out,
are: 1) create a "Financial Stability Trust" to oversee the
government's investment in financial institutions, 2) create a
"Public-Private Investment Fund" to make it less risky and/or more
profitable for private investors to transact in the marketplace as
opposed to asking the government to take on this task directly, and
3) create a "comprehensive housing program" aimed directly at the
housing sector and the many potential problems to come from future
bankruptcies and foreclosures.

Hopefully, Geithner will move down this path consistently,
certainly correcting course as necessary, but no longer abruptly
changing directions. This will help instill confidence in both the
business and consumer sectors of the economy.

Key Developments

The trade deficit in December narrowed slightly to $39.9 billion,
much lower than its peak of $67 billion in the fall of 2005. Many
who have wished for an improving trade deficit certainly did not
envision an overall slowing of global trade as their preferred
cause. Instead, the hope for greater productivity and more
appropriate pricing of overseas goods was their goal. Today's lower
deficit is simply a reflection of lower consumer and business
spending around the globe.

In a surprise move upward, retail sails actually increased one
percent in January after falling each of the previous six months
including a three percent decline in December. In the context of
sizable declines through the fall of 2008, January's jump, while
encouraging, is not yet indicative of any sort of recovery on the
consumer side.

The House and the Senate passed the latest economic stimulus plan
which totals $787 billion to be spent over the coming years. While
a headline politically, most market participants realize a one-time
injection totaling approximately seven percent of one year's GDP
will not provide a turn in the economy. Only an attitude reversal
of dejected consumers and investors will get the economy back on
track and this is why the actions of Treasury Secretary Timothy
Geithner are placed genuinely in the front seat.

It's only a month before spring but we can already feel the fogbeginning to lift. Of course, today's fog is the heaviest andthickest fog seen in a while, but it feels good to see apotential positive, in any case.

I'm speaking, of course, with regard to Treasury Secretary TimothyGeithner's speech last week. The quote above applies to many whowaited breathlessly during the five-day buildup to this speech,expecting some sort of magical plan to appear. The reality is thatno silver bullet plan exists and pretending it does would onlybring further disappointment and loss of confidence in the future.

Certainly, society is not so focused on immediate satisfaction thatan initial speech from an incoming official could be his deathknell?

On the contrary, I saw many positives in last Tuesday's address.Here are a few:

1.Most importantly, there were no specifics. Yes. You read that correctly. Because no one has all the answerstoday, to come out and state that you do only sets yourself up forassured destruction. Instead, Geithner has set a course...Read More